As filed with the Securities and Exchange Commission on May 15, 2003
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number 1-14788
-------
Capital Trust, Inc.
-------------------
(Exact name of registrant as specified in its charter)
Maryland 94-6181186
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
410 Park Avenue, 14th Floor, New York, NY 10022
- ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 655-0220
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes[ X ] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of outstanding shares of the Registrant's Class A Common
Stock, par value $0.01 per share ("Class A Common Stock"), as of May 13, 2003
was 5,425,678.
EXPLANATORY NOTE
- ----------------
On April 2, 2003, the Registrant successively filed with the State Department of
Assessments and Taxation of Maryland articles of amendment and restatement and
articles of amendment which amended and restated and then further amended the
Registrant's charter effective as of that date, among other things, to eliminate
from the authorized stock of the Registrant the entire 100,000,000 shares of the
Registrant's authorized but unissued class B common stock and to effect a one
(1) for three (3) reverse stock split of the Registrant's outstanding class A
common stock. The financial statements and other stock and per share related
information contained in this quarterly report on Form 10-Q reflects the
foregoing amendments to the Registrant's charter as though they were in effect
for all fiscal periods and as of all balance sheet dates presented.
CAPITAL TRUST, INC.
INDEX
Part I. Financial Information
Item 1: Financial Statements 1
Consolidated Balance Sheets - March 31, 2003 (unaudited) and
December 31, 2002 (audited) 1
Consolidated Statements of Income - Three Months Ended March 31, 2003
and 2002 (unaudited) 2
Consolidated Statements of Changes in Stockholders' Equity - Three
Months Ended March 31, 2003 and 2002 (unaudited) 3
Consolidated Statements of Cash Flows - Three Months Ended
March 31, 2003 and 2002 (unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 3: Quantitative and Qualitative Disclosures about Market Risk 16
Item 4: Disclosure Controls and Procedures 17
Part II. Other Information
Item 1: Legal Proceedings 18
Item 2: Changes in Securities 18
Item 3: Defaults Upon Senior Securities 18
Item 4: Submission of Matters to a Vote of Security Holders 18
Item 5: Other Information 18
Item 6: Exhibits and Reports on Form 8-K 18
Signatures 19
Capital Trust, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 2003 and December 31, 2002
(in thousands)
March 31, December 31,
---------------- -------------------
2003 2002
---------------- -------------------
(Unaudited) (Audited)
Assets
Cash and cash equivalents $ 11,176 $ 10,186
Available-for-sale securities, at fair value 46,414 65,233
Commercial mortgage-backed securities available-for-sale, at fair value 156,373 155,780
Loans receivable, net of $6,672 and $4,982 reserve for possible credit losses at
March 31, 2003 and December 31, 2002, respectively 135,762 116,347
Equity investment in CT Mezzanine Partners I LLC ("Fund I"), CT Mezzanine
Partners II LP ("Fund II") and CT MP II LLC ("Fund II GP") (together "Funds") 28,415 28,974
Deposits and other receivables 24 431
Accrued interest receivable 2,725 4,422
Deferred income taxes 1,755 1,585
Prepaid and other assets 1,825 2,018
---------------- --------------------
Total assets $ 384,469 $ 384,976
================ ====================
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued expenses $ 6,873 $ 9,067
Credit facility 44,468 40,000
Term redeemable securities contract 20,000 --
Repurchase obligations 140,495 160,056
Deferred origination fees and other revenue 895 987
Interest rate hedge liabilities 2,258 1,822
---------------- --------------------
Total liabilities 214,989 211,932
---------------- --------------------
Company-obligated, mandatory redeemable, convertible trust preferred securities of
CT Convertible Trust I, holding $89,742 of convertible 10.0% junior
subordinated debentures at March 31, 2003 and December 31, 2002
("Convertible Trust Preferred Securities") 89,107 88,988
---------------- --------------------
Stockholders' equity:
Class A common stock, $0.01 par value, 100,000 shares authorized, 5,410 and
5,405 shares issued and outstanding at March 31, 2003 and
December 31, 2002, respectively ("Class A Common Stock") 54 54
Restricted Class A Common Stock, $0.01 par value, 17 and 100 shares issued and
outstanding at March 31, 2003 and December 31, 2002, respectively ("Restricted Class
A Common Stock" and together with Class A Common Stock, "Common Stock") -- 1
Additional paid-in capital 123,654 126,919
Unearned compensation (62) (320)
Accumulated other comprehensive loss (29,766) (28,988)
Accumulated deficit (13,507) (13,610)
---------------- --------------------
Total stockholders' equity 80,373 84,056
---------------- --------------------
Total liabilities and stockholders' equity $ 384,469 $ 384,976
================ ====================
See accompanying notes to unaudited consolidated financial statements.
-1-
Capital Trust, Inc. and Subsidiaries
Consolidated Statements of Income
Three Months Ended March 31, 2003 and 2002
(in thousands, except per share data)
(unaudited)
2003 2002
------------------ -------------------
Income from loans and other investments:
Interest and related income $ 8,959 $ 13,986
Less: Interest and related expenses 2,295 5,649
------------------ -------------------
Income from loans and other investments, net 6,664 8,337
------------------ -------------------
Other revenues:
Management and advisory fees from Funds 1,376 2,491
Income/(loss) from equity investments in Funds 785 (2,694)
Advisory and investment banking fees -- 75
Other interest income 19 28
------------------ -------------------
Total other revenues 2,180 (100)
------------------ -------------------
Other expenses:
General and administrative 3,704 3,929
Other interest expense -- 12
Depreciation and amortization 232 248
Unrealized (gain)/loss on derivative securities -- (253)
Provision for/(recapture of) allowance for possible credit losses -- (2,963)
------------------ -------------------
Total other expenses 3,936 973
------------------ -------------------
Income before income taxes and distributions and amortization
on Convertible Trust Preferred Securities 4,908 7,264
Provision for income taxes -- 3,538
------------------ -------------------
Income before distributions and amortization on Convertible
Trust Preferred Securities 4,908 3,726
Distributions and amortization on Convertible Trust
Preferred Securities, net of income tax benefit of $1,855
for the three months ended March 31, 2002 2,363 2,153
------------------ -------------------
Net income allocable to Common Stock $ 2,545 $ 1,573
================== ===================
Per share information:
Net earnings per share of Common Stock
Basic $ 0.46 $ 0.25
================== ===================
Diluted $ 0.46 $ 0.24
================== ===================
Weighted average shares of Common Stock outstanding
Basic 5,515,484 6,269,995
================== ===================
Diluted 5,539,446 6,527,480
================== ===================
Dividends declared per share of Common Stock $ 0.45 $ --
================== ===================
See accompanying notes to unaudited consolidated financial statements.
-2-
Capital Trust, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
For the Three Months Ended March 31, 2003 and 2002
(in thousands)
(unaudited)
Restricted
Class A Class A Additional
Comprehensive Common Common Paid-In Unearned
Income/(Loss) Stock Stock Capital Compensation
----------------- --------------------------------------------------
Balance at January 1, 2002 $ 183 $ 4 $ 136,805 $ (583)
Net income $ 1,573 -- -- -- --
Unrealized gain on derivative financial
instruments, net of related income taxes 3,931 -- -- -- --
Unrealized loss on available-for-sale
securities, net of related income taxes (2,458) -- -- -- --
Issuance of Class A Common Stock unit
awards -- 1 -- 312 --
Issuance of restricted
Class A Common Stock -- -- 1 399 (400)
Vesting of restricted Class A Common Stock
to unrestricted Class A Common Stock -- 2 (2) -- --
Restricted Class A Common Stock earned -- -- -- -- 186
----------------- --------------------------------------------------
Balance at March 31, 2002 $ 3,046 $ 186 $ 3 $ 137,516 $ (797)
================= ==================================================
Balance at January 1, 2003 $ 162 $ 3 $ 126,809 $ (320)
Net income $ 2,545 -- -- -- --
Unrealized loss on derivative financial
instruments (436) -- -- -- --
Unrealized loss on available-for-sale
securities (342) -- -- -- --
Sale of shares of Class A Common Stock
under stock option agreement -- -- -- 4 --
Cancellation of restricted
Class A Common Stock -- -- -- (192) 192
Vesting of restricted Class A Common Stock
to unrestricted Class A Common Stock -- 2 (2) -- --
Restricted Class A Common Stock earned -- -- -- -- 66
Repurchase of warrants to purchase shares of
Class A Common Stock -- -- -- (2,132) --
Repurchase and retirement of shares of Class
A Common Stock previously outstanding -- (2) -- (944) --
Dividends declared on Class A Common
Stock -- -- -- -- --
Shares redeemed in one for three reverse stock
split -- (108) (1) 109 --
----------------- --------------------------------------------------
Balance at March 31, 2003 $ 1,767 $ 162 $ -- $ 123,654 $ (62)
================= ==================================================
Accumulated
Other
Comprehensive Accumulated
Income/(Loss) Deficit Total
--------------------------------------------------
Balance at January 1, 2002 $ (29,909) $ (3,872) $ 102,628
Net income -- 1,573 1,573
Unrealized gain on derivative financial
instruments, net of related income taxes 3,931 -- 3,931
Unrealized loss on available-for-sale
securities, net of related income taxes (2,458) -- (2,458)
Issuance of Class A Common Stock unit
awards -- -- 313
Issuance of restricted
Class A Common Stock -- -- --
Vesting of restricted Class A Common Stock
to unrestricted Class A Common Stock -- -- --
Restricted Class A Common Stock earned -- -- 186
--------------------------------------------------
Balance at March 31, 2002 $ (28,436) $ (2,299) $ 106,173
==================================================
Balance at January 1, 2003 $ (28,988) $ (13,610) $ 84,056
Net income -- 2,545 2,545
Unrealized loss on derivative financial
instruments (436) -- (436)
Unrealized loss on available-for-sale
securities (342) -- (342)
Sale of shares of Class A Common Stock
under stock option agreement -- -- 4
Cancellation of restricted
Class A Common Stock -- -- --
Vesting of restricted Class A Common Stock
to unrestricted Class A Common Stock -- -- --
Restricted Class A Common Stock earned -- -- 66
Repurchase of warrants to purchase shares of
Class A Common Stock -- -- (2,132)
Repurchase and retirement of shares of Class
A Common Stock previously outstanding -- -- (946)
Dividends declared on Class A Common
Stock -- (2,442) (2,442)
Shares redeemed in one for three reverse stock
split -- -- --
------------------------------------------------
Balance at March 31, 2003 $ (29,766) $ (13,507) $ 80,373
================================================
See accompanying notes to unaudited consolidated financial statements.
-3-
Capital Trust, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Three months ended March 31, 2003 and 2002
(in thousands)
(unaudited)
2003 2002
---------------- -----------------
Cash flows from operating activities:
Net income $ 2,545 $ 1,573
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Deferred income taxes (170) (494)
Recapture of allowance for possible credit losses -- (2,963)
Depreciation and amortization 232 248
Loss/(income) from equity investments in Funds (785) 2,694
Unrealized gain on hedged and derivative securities -- (253)
Restricted Class A Common Stock earned 66 186
Amortization of premiums and accretion of discounts on loans
and investments, net (136) (598)
Accretion of discounts on term redeemable securities contract -- 680
Accretion of discounts and fees on Convertible Trust Preferred Securities, net 119 199
Changes in assets and liabilities, net:
Deposits and other receivables 407 (238)
Accrued interest receivable 4,235 207
Prepaid and other assets 236 (62)
Deferred origination fees and other revenue (147) 88
Accounts payable and accrued expenses (4,753) 401
---------------- -----------------
Net cash provided by operating activities 1,849 1,668
---------------- -----------------
Cash flows from investing activities:
Purchases of available-for-sale securities -- (39,999)
Principal collections on available-for-sale securities 18,046 10,799
Principal collections and proceeds from sale of loans receivable 28,902 84,424
Equity investments in Funds (6,216) (1,137)
Return of capital from Funds 609 789
Purchase of remaining interest in Fund I (19,946) --
Purchases of equipment and leasehold improvements (2) (2)
---------------- -----------------
Net cash provided by investing activities 21,393 54,874
---------------- -----------------
Cash flows from financing activities:
Proceeds from repurchase obligations 134 143,086
Repayment of repurchase obligations (19,695) (10,907)
Proceeds from credit facilities 21,000 35,000
Repayment of credit facilities (40,617) (123,211)
Proceeds from term redeemable securities contract 20,000 35,816
Repayment of term redeemable securities contract -- (137,912)
Repayment of notes payable -- (488)
Sale of shares of Class A Common Stock under stock option agreement 4 --
Repurchase and retirement of shares of Class A Common Stock
previously outstanding (946) --
Repurchase of warrants to purchase shares of Class A Common Stock (2,132) --
---------------- -----------------
Net cash used in financing activities (22,252) (58,616)
---------------- -----------------
Net increase (decrease) in cash and cash equivalents 990 (2,074)
Cash and cash equivalents at beginning of year 10,186 11,651
---------------- -----------------
Cash and cash equivalents at end of period $ 11,176 $ 9,577
================ =================
See accompanying notes to unaudited consolidated financial statements.
-4-
Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2003
(unaudited)
1. Presentation of Financial Information
The accompanying unaudited consolidated interim financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. The
accompanying unaudited consolidated interim financial statements should be read
in conjunction with the financial statements and the related management's
discussion and analysis of financial condition and results of operations filed
with the Annual Report on Form 10-K of Capital Trust, Inc. and Subsidiaries
(collectively, the "Company") for the fiscal year ended December 31, 2002. In
the opinion of management, all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation have been included. The
results of operations for the three months ended March 31, 2003, are not
necessarily indicative of results that may be expected for the entire year
ending December 31, 2003.
The accompanying unaudited consolidated interim financial statements of the
Company include the accounts of the Company and its wholly-owned subsidiaries.
All significant intercompany balances and transactions have been eliminated in
consolidation. The accounting and reporting policies of the Company conform in
all material respects to accounting principles generally accepted in the United
States. Certain prior period amounts have been reclassified to conform to
current period classifications.
2. Subsequent Event
On April 2, 2003, the Company's charter was amended and restated and then
further amended to eliminate from the authorized stock of the Company the entire
100,000,000 shares of the Company's authorized but unissued class B common stock
and to effect a one (1) for three (3) reverse stock split of the Company's class
A common stock. Fractional shares resulting from the reverse stock split were
settled in cash at a rate of $16.65 multiplied by the percentage of a share
owned after the split.
All per share information concerning the computation of earnings per share,
dividends per share, authorized stock, and per share conversion and exercise
prices reported in the accompanying consolidated interim financial statements
and these notes to consolidated financial statements have been adjusted as if
the amendments to the Company's charter were in effect for all fiscal periods
and as of all balance sheet dates presented.
3. REIT Election
In December 2002, the Company's board of directors authorized the Company's
election to be taxed as a real estate investment trust ("REIT") for the 2003 tax
year. The Company will continue to make, for its own account and as investment
manager for the account of funds under management, loans and debt-related
investments in various types of commercial real estate and related assets.
In view of the Company's election to be taxed as a REIT, the Company has
tailored its balance sheet investment program to originate or acquire loans and
investments to produce a portfolio that meets the asset and income tests
necessary to maintain the Company's qualification as a REIT. In order to
accommodate the Company's REIT status, the legal structure of future investment
funds the Company sponsors may be different from the legal structure of the
Company's existing investment funds.
In order to qualify as a REIT, five or fewer individuals may own no more than
50% of the Company's Common Stock. As a means of facilitating compliance with
such qualification, stockholders controlled by John R. Klopp and Craig M.
Hatkoff and trusts for the benefit of the family of Samuel Zell each sold
166,666 shares of Class A Common Stock to an institutional investor in a
transaction that closed on February 7, 2003. Following this transaction, the
Company's largest five individual stockholders own in the aggregate less than
50% of the Company's Class A Common Stock.
-5-
Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
4. Purchase of Citigroup's Interest in Fund I
In January 2003, the Company purchased the 75% interest in CT Mezzanine Partners
I LLC ("Fund I") held by affiliates of Citigroup Alternative Investments, LLC
("Citigroup") for a purchase price of approximately $38.4 million (including the
assumption of liabilities), at the book value of the fund. On January 31, 2003,
the Company began consolidating the balance sheet and operations of Fund I in
its consolidated financial statements.
5. Use of Estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
6. Available-for-Sale Securities
At March 31, 2003, the Company's available-for-sale securities consisted of the
following (in thousands):
Gross
Amortized Unrealized Estimated
---------------------
Cost Gains Losses Fair Value
-----------------------------------------------
Federal Home Loan Mortgage Corporation Gold, fixed rate
interest at 6.50%, due September 1, 2031 $ 4,788 $ 161 $ -- $ 4,949
Federal Home Loan Mortgage Corporation Gold, fixed rate
interest at 6.50%, due September 1, 2031 21,151 659 -- 21,810
Federal Home Loan Mortgage Corporation Gold, fixed rate
interest at 6.50%, due September 1, 2031 1,413 49 -- 1,462
Federal Home Loan Mortgage Corporation Gold, fixed rate
interest at 6.50%, due April 1, 2032 17,434 759 -- 18,193
-----------------------------------------------
$ 44,786 $ 1,628 $ -- $ 46,414
===============================================
7. Loans Receivable
At March 31, 2003 and December 31, 2002, the Company's loans receivable
consisted of the following (in thousands):
March 31, December 31,
2003 2002
------------------- ------------------
(1) Mortgage Loans $ 14,752 $ 15,202
(2) Mezzanine Loans 127,682 98,268
(3) Other loans receivable -- 7,859
------------------- ------------------
142,434 121,329
Less: reserve for possible credit losses (6,672) (4,982)
------------------- ------------------
Total loans $ 135,762 $ 116,347
=================== ==================
In connection with the Company's purchase of Fund I interest held by Citigroup,
the Company recorded additional loans receivable of $50,034,000 and recorded a
$1,690,000 increase to the reserve for possible credit losses on the acquisition
date. The assets were recorded at their carrying value from Fund I, which
approximated the market value on the acquisition date.
-6-
Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
One Mortgage Loan receivable with an original principal balance of $8,000,000
reached maturity on July 15, 2001 and has not been repaid with respect to
principal and interest. In December 2002, the loan was written down to
$4,000,000 through a charge to the allowance for possible credit losses. In
accordance with the Company's policy for revenue recognition, income recognition
has been suspended on this loan and for the three months ended March 31, 2003,
$114,000 of potential interest income has not been recorded.
At March 31, 2003, the weighted average interest rate in effect, including
amortization of fees and premiums, for the Company's performing loans receivable
is as follows:
(1) Mortgage Loans 10.23%
(2) Mezzanine Loans 10.58%
Total loans 10.56%
At March 31, 2003, $49,570,000 (36%) of the aforementioned performing loans bear
interest at floating rates ranging from LIBOR plus 235 basis points to LIBOR
plus 875 basis points. The remaining $88,864,000 (64%) of loans bear interest at
fixed rates ranging from 11.62% to 12.00%.
8. Long-Term Debt
Credit Facility
In connection with the Company's purchase of Fund I interest held by Citigroup,
the Company assumed the obligations under the credit facility entered into by
Fund I. There were outstanding borrowings of $24,084,000 on the date of
acquisition. The lender for the Fund I credit facility is the same as the lender
for the Company's outstanding credit facility and thus the two facilities have
been combined for reporting purposes.
At March 31, 2003, the Company has borrowed $44,468,000 under a $150 million
credit facility at an average borrowing rate (including amortization of fees
incurred and capitalized) of 4.89%. The Company has pledged assets of
$103,406,000 as collateral for the borrowing against such credit facility. On
March 31, 2003, the unused amount of potential credit under the remaining credit
facility was $105,532,000.
Repurchase Obligations
At March 31, 2003, the Company was obligated to two counterparties under
repurchase agreements.
The repurchase obligation with the first counterparty, an affiliate of a
securities dealer, was utilized to finance CMBS securities. At March 31, 2003,
the Company has sold CMBS assets with a book and market value of $156,373,000
and has a liability to repurchase these assets for $95,268,000 that is
non-recourse to the Company. This repurchase obligation had an original one-year
term that expired in February 2003 and was extended to February 2004. The
liability balance bears interest at specified rates over LIBOR based upon each
asset included in the obligation.
The other repurchase obligation with the other counterparty, a securities
dealer, arose in connection with the purchase of available-for-sale securities.
At March 31, 2003, the Company has sold such assets with a book and market value
of $46,414,000 and has a liability to repurchase these assets for $45,227,000.
This repurchase agreement comes due monthly and has a current maturity date in
June 2003. The liability balance bears interest at LIBOR.
The interest rate in effect for all the repurchase obligations outstanding at
March 31, 2003 was 2.08%.
Term Redeemable Securities Contract
At March 31, 2003, the Company has borrowed $20,000,000 under a $75 million term
redeemable securities contract at an average borrowing rate (including
amortization of fees incurred and capitalized) of 5.31%. The Company has pledged
assets of $35,028,000 as collateral for the borrowing against such credit
facility. On March 31, 2003, the unused amount of potential credit under the
remaining credit facility was $55,000,000.
-7-
Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
9. Derivative Financial Instruments
The following table summarizes the notional value and fair value of the
Company's derivative financial instruments at March 31, 2003. The notional value
provides an indication of the extent of the Company's involvement in these
instruments at that time, but does not represent exposure to credit, interest
rate or foreign exchange market risks.
Interest
Hedge Type Notional Value Rate Maturity Fair Value
-------- ---------------- ----------------- -------------- ------------ ---------------
Swap Cash Flow Hedge $85,000,000 4.2425% 2015 $ (1,776,000)
Swap Cash Flow Hedge 24,000,000 4.2325% 2015 (482,000)
On March 31, 2003, the derivative financial instruments were reported at their
fair value as interest rate hedge liabilities of $2,258,000.
10. Earnings Per Share
The following table sets forth the calculation of Basic and Diluted EPS:
Three Months Ended March 31, 2003 Three Months Ended March 31, 2002
-------------------------------------------- --------------------------------------------
Net Income Shares Per Share Net Loss Shares Per Share
Amount Amount
-------------------------------------------- -------------- ----------------- -----------
Basic EPS:
Net earnings per share of
Common Stock $ 2,545,000 5,515,484 $ 0.46 $ 1,573,000 6,269,995 $ 0.25
============= ============
Effect of Dilutive Securities
Options outstanding for the
purchase of Common Stock -- 23,962 -- 37,580
Warrants outstanding for the
purchase of Common Stock -- -- -- 219,905
------------------------------- -------------- -----------------
Diluted EPS:
Net earnings per share of
Common Stock and Assumed
Conversions $ 2,545,000 5,539,446 $ 0.46 $ 1,573,000 6,527,480 $ 0.24
============================================ ============== =============================
All per share information has been adjusted for the one for three reverse stock
split in the computation of earnings per share and dividends per share as
presented on the consolidated statements of income. See Note 2.
11. Income Taxes
The Company intends to make an election to be taxed as a REIT under Section
856(c) of the Internal Revenue Code of 1986, as amended, commencing with the tax
year ending December 31, 2003. As a REIT, the Company generally is not subject
to federal income tax. To maintain qualification as a REIT, the Company must
distribute at least 90% of its REIT taxable income to its stockholders and meet
certain other requirements. If the Company fails to qualify as a REIT in any
taxable year, the Company will be subject to federal income tax on its taxable
income at regular corporate rates. The Company may also be subject to certain
state and local taxes on its income and property. Under certain circumstances,
federal income and excise taxes may be due on its undistributed taxable income.
At March 31, 2003, the Company was in compliance with all REIT requirements.
-8-
Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
12. Dividends
In order to maintain its election to qualify as a REIT, the Company must
currently distribute, at a minimum, an amount equal to 90% of its REIT taxable
income and must distribute 100% of its REIT taxable income to avoid paying
corporate federal income taxes. The Company anticipates it will distribute all
of its REIT taxable income to its stockholders. Because REIT taxable income
differs from cash flow from operations due to non-cash revenues or expenses, in
certain circumstances, the Company may be required to borrow to make sufficient
dividend payments to meet this anticipated dividend threshold.
On March 11, 2003, the Company declared a dividend of approximately $2,442,000,
or $0.45 per share of common stock (after adjustment for the one for three
reverse stock split) applicable to the three-month period ended March 31, 2003,
payable on April 15, 2003 to stockholders of record on March 31, 2003.
13. Employee Benefit Plans
1997 Long-Term Incentive Stock Plan
During the three months ended March 31, 2003, the Company did not issue any
options to acquire shares of Class A Common Stock or restricted shares of Class
A Common Stock.
The following table summarizes the option activity under the incentive stock
plan for the quarter ended March 31, 2003:
Weighted Average
Options Exercise Price Exercise Price
Outstanding per Share per Share
--------------------------------------------- ------------------
Outstanding at January 1, 2003 657,250 $12.375 - $30.00 $ 18.87
Granted in 2003 -- -- --
Exercised in 2003 (278) $12.375 - $13.50 12.83
Canceled in 2003 (118,501) $12.375 - $30.00 18.56
------------------- ------------------
Outstanding at March 31, 2003 538,471 $12.375 - $30.00 $ 18.94
=================== ==================
At March 31, 2003, 1,282,985 of the options are exercisable. At March 31, 2003,
the outstanding options have various remaining contractual exercise periods
ranging from 2.76 to 8.85 years with a weighted average life of 6.35 years.
14. Supplemental Disclosures for Consolidated Statements of Cash Flows
Interest paid on the Company's outstanding debt and Convertible Preferred Trust
Securities during the three months ended March 31, 2003 and 2002 was $4,716,000
and $3,765,000, respectively. Income taxes paid by the Company during the three
months ended March 31, 2003 and 2002 was $1,193,000 and $4,240,000,
respectively. In connection with the purchase of the Fund I interest held by
Citigroup, the Company assumed $24,084,000 of credit facility debt that is a
non-cash activity.
-9-
Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
15. Segment Reporting
The Company has established two reportable segments beginning January 1, 2003.
The Company has an internal information system that produces performance and
asset data for its two segments along service lines.
The Lending and Investment segment includes all of the Company's activities
related to direct loan and investment activities and the financing thereof.
The Investment Management segment includes all of the Company's activities
related to investment management services provided to the Company and funds
under management and includes the Company's taxable REIT subsidiary, CT
Investment Management Co., LLC ("CTIMCO"), and its subsidiaries. The segment
also provides asset management and advisory services relating to real estate
properties.
The following table details each segment's contribution to the Company's overall
profitability and the identified assets attributable to each such segment for
the three months ended and as of March 31, 2003, respectively (in thousands):
Lending and Investment Inter-Segment
Investment Management Activities Total
------------------- ----------------- ------------------- --------------
Income from loans and other investments:
Interest and related income $ 8,959 $ -- $ -- $ 8,959
Less: Interest and related expenses 2,295 -- -- 2,295
------------------- ----------------- ------------------- --------------
Income from loans and other investments, net 6,664 -- -- 6,664
------------------- ----------------- ------------------- --------------
Other revenues:
Management and advisory fees -- 2,535 (1,159) 1,376
Income/(loss) from equity investments in Funds 731 54 -- 785
Other interest income 11 8 -- 19
------------------- ----------------- ------------------- --------------
Total other revenues 742 2,597 (1,159) 2,180
------------------- ----------------- ------------------- --------------
Other expenses:
General and administrative 1,941 2,922 (1,159) 3,704
Depreciation and amortization 199 33 -- 232
------------------- ----------------- ------------------- --------------
Total other expenses 2,140 2,955 (1,159) 3,936
------------------- ----------------- ------------------- --------------
Income before income taxes and distributions and
amortization on Convertible Trust Preferred Securities 5,266 (358) -- 4,908
Provision for income taxes -- -- -- --
------------------- ----------------- ------------------- --------------
Income before distributions and amortization on
Convertible Trust Preferred Securities 5,266 (358) -- 4,908
Distributions and amortization on Convertible Trust
Preferred Securities 2,363 -- -- 2,363
------------------- ----------------- ------------------- --------------
Net income allocable to Class A Common Stock $ 2,903 $ (358) $ -- $ 2,545
=================== ================= =================== ==============
Total Assets $ 382,343 $ 16,522 $ (14,426) $ 384,469
=================== ================= =================== ==============
All revenues were generated from external sources within the United States. The
Lending and Investment segment paid the Investment Management segment fees of
$1,159,000 for management of the segment, which is reflected as offsetting
adjustments to other revenues and other expenses in the Inter-Segment Activities
column in the table above.
-10-
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Form 10-Q.
Historical results set forth are not necessarily indicative of the future
financial position and results of operations of the Company.
Introduction
The Company is an investment management and real estate finance company that
operated principally as a balance sheet lender until the commencement of its
investment management business in March 2000. In December 2002, the Company's
board of directors authorized an election to be taxed as a REIT for the 2003 tax
year. The Company will continue to make, for its own account and as investment
manager for the account of funds under management, loans and debt-related
investments in various types of commercial real estate assets and operating
companies.
On March 8, 2000, the Company entered into a venture with affiliates of
Citigroup Alternative Investments, LLC ("Citigroup") to co-sponsor, commit to
invest capital in and manage high-yield commercial real estate mezzanine
investment funds. Pursuant to the venture agreement, the Company and Citigroup
co-sponsored Fund I and Fund II. Fund II's total equity commitments were $845.2
million, including equity commitments of $49.7 million and $198.9 million from
the Company and Citigroup, respectively. On January 1, 2003, the general
partners of Fund II (affiliates of the Company and Citigroup) voluntarily
reduced the management fees for the remainder of the investment period by 50%
due to a lower than expected level of deployment of the fund's capital. Total
capital calls of $329.0 million have been collected as of March 31, 2002 and no
additional capital calls are anticipated as the investment period ended on April
9, 2003. The Company is also entitled to receive incentive payments from Fund II
if the return on invested equity is in excess of 10%. The amount of any such
payments is not determinable at March 31, 2003 and as such, no amount has been
accrued as income for such potential payments in the financial statements.
Potential incentive payments received as Fund II winds down could result in
significant additional income from operations in certain periods during which
such payments can be recorded as income.
In 2001 and 2002 in connection with the organization of Fund I and Fund II, the
Company issued to affiliates of Citigroup warrants to purchase 2,842,825 shares
of Class A Common Stock. At December 31, 2002, all such warrants had a $15.00
per share exercise price, were exercisable and were to expire on March 8, 2005.
In January 2003, the Company purchased all of the warrants outstanding from the
affiliates of Citigroup for $2.1 million.
The Company's current lending and investment activities are conducted
principally through funds under management. Until the end of the investment
period for Fund II on April 9, 2003, the Company generally did not originate or
acquire loans or CMBS directly for its own balance sheet portfolio. Now that the
Fund II investment period has ended, the Company plans to originate loans or
purchase investments for its own account as permitted by future funds under
management. The Company will also use its available working capital to make
contributions to Fund II or any other funds as and when required by the capital
commitments made by the Company to such funds. If the amount of the Company's
maturing loans and investments increases significantly before excess capital is
invested in new funds, or otherwise accretively deployed, the Company may
experience shortfalls in revenues and lower earnings until offsetting revenues
are derived from funds under management or other sources. For the remainder of
2003, the Company does not expect a decrease in total assets, as additional
reductions in loans and investments from satisfactions will require the Company
to purchase or originate additional assets that are qualifying assets under the
Investment Company Act of 1940.
-11-
On January 31, 2003, the Company purchased from affiliates of Citigroup their
75% interest in Fund I for $38.4 million (including the assumption of
liabilities). As of January 31, 2003, the Company began consolidating the
operations of Fund I in its consolidated financial statements.
Since December 31, 2002, the Company has made equity contributions to Fund II of
$5.5 million and equity contributions to Fund II's general partner of $757,000.
The Company's does not anticipate making any additional equity contributions to
Fund II or its general partner. The Company's total investment in Fund II and
its general partner at March 31, 2003 is $22.0 million. As of March 31, 2003,
Fund II has outstanding loans and investments totaling $741.1 million, all of
which are performing in accordance with the terms of their agreements.
The Company has capitalized costs of $6,391,000, net, that are being amortized
over the anticipated lives of the Funds.
Results of Operations for the Three Months Ended March 31, 2003 and 2002
- ------------------------------------------------------------------------
The Company reported a net income of $2,545,000 for the three months ended March
31, 2003, an increase of $972,000 from the net income of $1,573,000 for the
three months ended March 31, 2002. This increase was primarily the result of the
elimination of income taxes in 2003 with the REIT election and the increase in
income from equity investments in Funds. These increases were partially offset
by a reduction in management and advisory fees from Funds, a recapture of the
allowance for possible credit losses in 2002, which did not recur in 2003, and a
reduction in net income from loans and investments.
Interest and related income from loans and other investments amounted to
$8,959,000 for the three months ended March 31, 2003, a decrease of $5,027,000
from the $13,986,000 amount for the three months ended March 31, 2002. Average
interest-earning assets decreased from approximately $562.8 million for the
three months ended March 31, 2002 to approximately $351.6 million for the three
months ended March 31, 2003. The average interest rate earned on such assets
increased from 10.1% in 2002 to 10.3% in 2003. During the three months ended
March 31, 2003, the Company recognized $367,000 in additional income on the
early repayment of loans. Without this additional interest income, the earning
rate for the 2003 period would have been 9.9% versus 10.1% for the 2002 period.
LIBOR rates averaged 1.3% for the three months ended March 31, 2003 and 1.8% for
the three months ended March 31, 2002, a decrease of 0.5%. Since substantial
portions of the Company's assets earn interest at fixed-rates, the decrease in
the average earning rate did not correspond to the full decrease in the average
LIBOR rate.
Interest and related expenses amounted to $2,295,000 for the three months ended
March 31, 2003, a decrease of $3,354,000 from the $5,649,000 amount for the
three months ended March 31, 2002. The decrease in expense was due to a decrease
in the amount of average interest-bearing liabilities outstanding from
approximately $333.3 million for the three months ended March 31, 2002 to
approximately $205.9 million for the three months ended March 31, 2003, and a
decrease in the average rate paid on interest-bearing liabilities from 6.9% to
4.5% for the same periods. The decrease in the average rate is substantially due
to the increased use of repurchase agreements as a percentage of total debt in
the 2003 period at lower spreads to LIBOR than the credit facilities utilized in
the 2002 period and the decrease in swap levels and rates.
The Company also utilized proceeds from the $150.0 million of Convertible Trust
Preferred Securities, which were issued on July 28, 1998 to finance its
interest-earning assets. During the three months ended March 31, 2003 and 2002,
the Company recognized $2,363,000 and $2,153,000, respectively, of net expenses
related to its outstanding Convertible Trust Preferred Securities. This amount
consisted of distributions to the holders totaling $2,244,000 and $3,809,000,
respectively, and amortization of discount and origination costs totaling
$119,000 and $199,000, respectively, during the three months ended March 31,
2003 and 2002. In the 2002 period, this total was partially offset by a tax
benefit of $1,855,000. Due to the Company's election to be taxed as a REIT,
there is no tax benefit of the expense in the 2003 period. The decrease in the
distribution amount and amortization of discount and origination costs resulted
from the elimination of the distributions and discount and fees on the
Non-Convertible Amount, which was repaid on September 30, 2002.
-12-
Other revenues increased $2,280,000 from ($100,000) for the three months ended
March 31, 2002 to $2,180,000 the three months ended March 31, 2003. On January
1, 2003, the general partners of Fund II (affiliates of the Company and
Citigroup) voluntarily reduced by 50% the management fees charged to Fund II for
the remainder of the investment period due to a lower than expected level of
deployment of the Fund's capital. This reduced the Company's share of management
and advisory fees from Funds by approximately $1.0 million. During the quarter
ended March 31, 2002, Fund I increased its allowance for possible credit losses
by establishing a specific reserve for the non-performing loan it was carrying.
This additional expense drove the loss from equity investments in Funds.
General and administrative expenses decreased $225,000 to $3,704,000 for the
three months ended March 31, 2003 from $3,929,000 for three months ended March
31, 2002. The decrease in general and administrative expenses was primarily due
to reduced employee compensation from a reduction in the average number of
employees. The Company employed an average of 25 employees during the three
months ended March 31, 2003 and 28 during the three months ended March 31, 2002.
The Company had 23 full-time employees and one part-time employee at March 31,
2003.
During the three months ended March 31, 2002, the Company recaptured $2,963,000
of its previously established allowance for possible credit losses. The Company
deemed this recapture necessary due to the substantial reduction in the loan
portfolio and a general reduction in the default risk of the loans remaining
based upon current conditions. At March 31, 2003, the Company believes that the
reserve is adequate based on the existing loans in the balance sheet portfolio.
The Company intends to make an election to be taxed as a REIT under Section
856(c) of the Internal Revenue Code of 1986, as amended, commencing with the tax
year ending December 31, 2003. As a REIT, the Company generally is not subject
to federal income tax. To maintain qualification as a REIT, the Company must
distribute at least 90% of its REIT taxable income to its stockholders and meet
certain other requirements. If the Company fails to qualify as a REIT in any
taxable year, the Company will be subject to federal income tax on its taxable
income at regular corporate rates. The Company may also be subject to certain
state and local taxes on its income and property. Under certain circumstances,
federal income and excise taxes may be due on its undistributed taxable income.
At March 31, 2003, the Company was in compliance with all REIT requirements and
as such, has not provided for any income tax expense in 2003.
Liquidity and Capital Resources
- -------------------------------
At March 31, 2003, the Company had $11,176,000 in cash. The primary sources of
liquidity for the Company for 2003 will be cash on hand, cash generated from
operations, principal and interest payments received on loans and investments
and additional borrowings under the Company's credit facilities. The Company
believes these sources of capital are adequate to meet future cash requirements.
The Company expects that during 2003, it will use a significant amount of its
available capital resources to satisfy capital contributions required in
connection with future funds and originate loans and investments for its balance
sheet. The Company intends to continue to employ leverage on its existing
balance sheet assets to enhance its return on equity.
The Company experienced a net increase in cash of $990,000 for the three months
ended March 31, 2003, compared to the net decrease of $2,074,000 for the three
months ended March 31, 2002. Cash provided by operating activities during the
quarter ended March 31, 2003 was $1,849,000, compared to $1,668,000 provided
during the same period of 2002. For the quarter ended March 31, 2003, cash
provided by investing activities was $21,393,000, compared to $54,874,000 during
the same period in 2002 as the Company experienced lower levels of loan and
investment repayments in the 2003 period than the 2002 period and purchased
significant levels of available-for-sale securities in the 2002 period. The
Company utilized the cash received on loan repayments in both years to reduce
borrowings under its credit facilities and entered into repurchase obligations
to finance the purchase of available-for-sale securities in the 2002 period
which accounted for the majority of the change in the net cash used in financing
activities from $58,616,000 in 2002 to the $22,252,000 in the same period of
2003.
On January 31, 2003, the Company purchased Citigroup's 75% interest in Fund I
for a purchase price of approximately $38.4 million (including the assumption of
liabilities), equal to the book value of the fund. In conjunction with the
purchase, the Company acquired $50.0 million of loans receivable and assumed
$24.1 million of borrowings under a credit facility. On January 31, 2003, the
Company began consolidating the balance sheet and operations of Fund I in its
consolidated financial statements.
-13-
Other than those acquired with the purchase of Citigroup's interest in Fund I,
the Company has not originated or purchased any new loans since December 31,
2002 and has no future commitments under any existing loans. The Company has
received full satisfaction of two loans totaling $27.7 million and partial
repayments on six loans totaling $1.2 million in 2003. At March 31, 2003, the
Company had outstanding loans totaling approximately $135.8.3 million (net of
reserves) and held CMBS and other available-for-sale securities of $156.4
million and $46.4 million, respectively.
At March 31, 2003, after assumption of the debt in conjunction with the purchase
of Citigroup's interests in Fund I, the Company was party to a credit facility
with a commercial lender that provides for a total of $150 million of credit.
The facility matures in July 2003, with an automatic nine-month amortizing
extension option, if not otherwise extended. At March 31, 2003, the Company had
outstanding borrowings under the credit facility of $44,468,000, and had unused
potential credit of $105,532,000, an amount of available credit that provides
the Company with adequate liquidity for its short-term needs. The credit
facility provides for advances to fund lender-approved loans and investments
made by the Company. Borrowings under the credit facility are secured by pledges
of the assets originated or acquired by the Company with advances under the
credit facility. Borrowings under the credit facility bear interest at specified
rates over LIBOR, which rates may fluctuate, based upon the credit quality of
the pledged assets. Future repayments and redrawdowns of amounts previously
subject to the drawdown fee will not require the Company to pay any additional
fees. The credit facility provides for margin calls on asset-specific borrowings
in the event of asset quality and/or market value deterioration as determined
under the credit facility. The credit facility contains customary
representations and warranties, covenants and conditions and events of default.
On March 31, 2003, the Company was party to a $75 million term redeemable
securities contract. The term redeemable securities contract has a two-year
term, maturing in February 2004, with an automatic one-year amortizing extension
option, if not otherwise extended. The Company has borrowings against the term
redeemable securities contract of $20,000,000 at March 31, 2003.
At March 31, 2003, the Company also has outstanding repurchase obligations of
$140,495,000. The average interest rate in effect for the repurchase obligations
outstanding at March 31, 2003 was 2.08%. The Company expects to enter into new
repurchase obligations at their maturity.
The Company is party to two interest rate cash flow swaps with a total notional
value of $109 million. These cash flow interest rate swaps effectively convert
floating rate debt to fixed rate debt, which is utilized to finance assets which
earn interest at fixed rates. At March 31, 2003, the market value of the swaps
is a liability of $2,258,000 which is recorded as interest rate hedge
liabilities and accumulated other comprehensive loss on the balance sheet of the
Company.
In March 2003, the Company repurchased 66,427 shares of Class A Common stock
under the open market share repurchase program from the Company's former chief
financial officer at a price of $14.25 per share. After the repurchase, the
Company has 666,339 shares remaining available for repurchase under the
authorization from the board of directors for the program.
-14-
Note on Forward-Looking Statements
- ----------------------------------
Except for historical information contained herein, this quarterly report on
Form 10-Q contains forward-looking statements within the meaning of the Section
21E of the Securities and Exchange Act of 1934, as amended, which involve
certain risks and uncertainties. Forward-looking statements are included with
respect to, among other things, the Company's current business plan, business
and investment strategy and portfolio management. These forward-looking
statements are identified by their use of such terms and phrases as "intends,"
"intend," "intended," "goal," "estimate," "estimates," "expects," "expect,"
"expected," "project," "projected," "projections," "plans," "anticipates,"
"anticipated," "should," "designed to," "foreseeable future," "believe,"
"believes" and "scheduled" and similar expressions. The Company's actual results
or outcomes may differ materially from those anticipated. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date the statement was made. The Company undertakes no obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
Important factors that the Company believes might cause actual results to differ
from any results expressed or implied by these forward-looking statements are
discussed in the cautionary statements contained in Exhibit 99.3 to this Form
10-Q (filed as Exhibit 99.1 to the Company's Annual Report on Form 10-K, filed
on March 28, 2003 and incorporated therein by reference), which are incorporated
herein by reference. In assessing forward-looking statements contained herein,
readers are urged to read carefully all cautionary statements contained in this
Form 10-Q.
-15-
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
The principal objective of the Company's asset/liability management activities
is to maximize net interest income, while minimizing levels of interest rate
risk. Net interest income and interest expense are subject to the risk of
interest rate fluctuations. To mitigate the impact of fluctuations in interest
rates, the Company uses interest rate swaps to effectively convert fixed rate
assets to variable rate assets for proper matching with variable rate
liabilities and variable rate liabilities to fixed rate liabilities for proper
matching with fixed rate assets. Each derivative used as a hedge is matched with
an asset or liability with which it has a high correlation. The swap agreements
are generally held-to-maturity and the Company does not use derivative financial
instruments for trading purposes. The Company uses interest rate swaps to
effectively convert variable rate debt to fixed rate debt for the financed
portion of fixed rate assets. The differential to be paid or received on these
agreements is recognized as an adjustment to the interest expense related to
debt and is recognized on the accrual basis.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates at March 31, 2003.
For financial assets and debt obligations, the table presents cash flows to the
expected maturity and weighted average interest rates based upon the current
carrying values. For interest rate swaps, the table presents notional amounts
and weighted average fixed pay and variable receive interest rates by
contractual maturity dates. Notional amounts are used to calculate the
contractual cash flows to be exchanged under the contract. Weighted average
variable rates are based on rates in effect as of the reporting date.
Expected Maturity Dates
-------------------------------------------------------------------------------------
2003 2004 2005 2006 2007 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
Assets: (dollars in thousands)
Available-for-sale securities
Fixed Rate $ 16,883 $ 16,197 $ 6,931 $ 2,730 $ 1,074 $ 694 $44,509 $46,414
Average interest rate 5.83% 5.83% 5.83% 5.83% 5.83% 5.83% 5.83%
CMBS
Fixed Rate -- -- -- $ 7,811 $ 135 $201,024 $208,970 $156,373
Average interest rate -- -- -- 10.04% 8.42% 11.93% 11.86%
Loans receivable
Fixed Rate -- -- -- -- $ 39,350 $ 49,234 $ 88,584 $103,400
Average interest rate -- -- -- -- 11.32% 11.99% 11.69%
Variable Rate $ 39,108 $ 6,695 $ 667 $ 667 $ 667 $ 5,888 $53,692 $ 51,723
Average interest rate 8.91% 3.11% 6.87% 6.87% 6.87% 6.87% 7.89%
Liabilities:
Credit Facilities
Variable Rate -- $ 44,468 -- -- -- -- $44,468 $44,468
Average interest rate -- 4.89% -- -- -- -- 4.89%
Term redeemable securities
contract
Variable Rate -- -- $ 20,000 -- -- -- $ 20,000 $ 20,000
Average interest rate -- -- 5.32% -- -- -- 5.32%
Repurchase obligations
Variable Rate $ 45,227 $ 95,268 -- -- -- -- $140,495 $140,495
Average interest rate 1.34% 2.43% -- -- -- -- 2.08%
Convertible Trust
Preferred Securities
Fixed Rate -- -- -- $89,742 -- -- $89,742 $89,107
Average interest rate -- -- -- 10.00% -- -- 10.00%
Interest rate swaps
Notional amounts -- -- -- -- -- $ 109,000 $109,000 $ (1,822)
Average fixed pay rate -- -- -- -- -- 4.24% 4.24%
Average variable
receive rate -- -- -- -- -- 1.30% 1.42%
-16-
ITEM 4. Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of the Company's
"disclosure controls and procedures" (as defined in Rule 13a-14(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) was carried
out within 90 days prior to the filing of this quarterly report. This evaluation
was made under the supervision and with the participation of the Company's
management, including its Chief Executive Officer and Chief Financial Officer.
Based upon this evaluation, the Company's Chief Executive Officer and Chief
Financial Officer have concluded that the Company's disclosure controls and
procedures (a) are effective to ensure that information required to be disclosed
by the Company in reports filed or submitted under the Exchange Act is timely
recorded, processed, summarized and reported and (b) include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by the Company in reports filed or submitted under the Exchange
Act is accumulated and communicated to the Company's management, including its
Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
Changes in Internal Controls
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of the Company's evaluation.
-17-
PART II. OTHER INFORMATION
ITEM 1: Legal Proceedings
None
ITEM 2: Changes in Securities
None
ITEM 3: Defaults Upon Senior Securities
None
ITEM 4: Submission of Matters to a Vote of Security Holders
None
ITEM 5: Other Information
None
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statements regarding Computation of Earnings per Share (Data
required by Statement of Financial Accounting Standard No. 128,
Earnings per Share, is provided in Note 10 to the consolidated
financial statements contained in this report).
*99.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*99.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.3 Risk Factors (filed as Exhibit 99.1 to the Company's Annual
Report on Form 10-K, filed on March 28, 2003 and incorporated
herein by reference).
* Pursuant to Commission Release No. 33-8212, this certification will
be treated as "accompanying" this Quarterly Report on Form 10-Q and
not "filed" as part of such report for purposes of Section 18 of the
Exchange Act, or otherwise subject to the liability of Section 18 of
the Exchange Act, and such certification will not be deemed to be
incorporated by reference into any filing under the Securities Act of
1933, as amended, or the Exchange Act, except to the extent the
registrant specifically incorporates it by reference.
(b) Reports on Form 8-K
During the fiscal quarter ended March 31, 2003, the Company filed the
following Current Reports on Form 8-K:
None
-18-
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITAL TRUST, INC.
May 15, 2003 /s/ John R. Klopp
- ------------ -----------------
Date John R. Klopp
Chief Executive Officer
/s/ Brian H. Oswald
-------------------
Brian H. Oswald
Chief Financial Officer
-19-
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John R. Klopp, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Capital Trust,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ John R. Klopp
------------------
John R. Klopp
Chief Executive Officer
-20-
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brian H. Oswald, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Capital Trust,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Brian H. Oswald
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Brian H. Oswald
Chief Financial Officer
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